NU Online News Service, May 12, 12:12 p.m.EDT

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The National Conference of Insurance Legislators announced ithas written Congress advising that proposals for financial servicesregulatory reform should involve state and federal regulators asequal partners.

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NCOIL's letter concerning systemic risk regulation was directedto U.S. Senate Banking and House Financial Services Committeeleaders and emphasized that there is a need for more structuredcommunication between financial regulators.

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Officers of NCOIL cautioned the panel against consolidatingauthority in a single federal body and stressed the successfultrack record of state regulation.

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The letter was signed by NCOIL's president, New York State Sen.James Seward, R-Oneonta; president-elect, Kentucky State Rep.Robert Damron, D-Nicholasville; vice president, North Dakota StateRep. George Keiser, R-Bismarck; secretary, New Mexico State Sen.Carroll Leavell, R-Jal; and treasurer, Indiana State Sen. ViSimpson, R-Bloomington.

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They said a systemic risk oversight approach that relies onhorizontal communication between and among regulators "avoids thedangers associated with consolidating power in any one agency orentity, such as regulatory capture, bias in favor of one particularfinancial sector or perspective, and inadvertent 'loopholes' orunintended consequences."

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The legislative leaders wrote that "…the value of stateregulation must be recognized in the reform process." Stressing aneed for state expertise in systemic oversight, they said: "It isfrankly difficult to trace our current financial crisis to lapsesin state regulation. Indeed, some of the problems our markets nowface might have been mitigated had the states' consumer protectionauthority not been curtailed or preempted in certain areas."

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The NCOIL officers' letter said systemic risk oversight shouldcomprise the following principles, or concepts:

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o There need not be a super or "uber" regulator, but an entityto capture and coordinate data, which is vital to understanding andmanaging systemic risk.

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o Any such structure should preserve state regulatory authority,place all regulators on an even footing, and hold themaccountable.

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o Transparency is paramount to the success of such a system, asregulators, as well as the regulated, must be willing to shed theirprotectionist natures and share data across jurisdictions.

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o Any change in structure cannot come at the expense of ongoingstate modernization efforts, such as the Interstate InsuranceProduct Regulation Compact (IIPRC).

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o Any changes to the current regulatory structure and reformsaimed at controlling systemic risk should be built on our existingregulatory framework.

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Regarding state initiatives aimed at promoting uniformity andreciprocity in the insurance marketplace, NCOIL officers wrote,"States also continue to make strides in targeted modernizationreforms and are achieving efficiencies in agent and companylicensing and market conduct and suitability oversight." They notedthat the IIPRC–a speed-to-market endeavor–now comprises 35jurisdictions.

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While committing to work with Congress to address systemic risk,NCOIL leaders said that: "NCOIL is opposed to any proposed overhaulthat fails to recognize and take full advantage of the enormouscontribution that state regulators make in the area of insuranceregulation and financial services generally–especially at a timewhen state consumer protections are more important than ever."

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The officers added, "NCOIL recognizes that reform of financialservices is in order, but we firmly believe that reform based onstate successes is the avenue to choose."

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